Denmark

Secondary markets broadly remain under pressure, though there are cracks of light appearing here and there. The long end of the French market seems to be stabilising, there have been some buyers of Cédulas and there is still a smattering of interest in selective Scandinavian names. But the outlook remains dim and relative value against other sectors suggests covered bonds are expensive.

Denmark’s Nykredit has finished a 12 day auction to refinance its adjustable rate mortgages, selling a larger volume at cheaper levels than last year. Nykredit’s decision to pool all ARMs into a new capital centre, following Moody’s concerns that these loans represent a source of greater refinancing risk, clearly paid off.

The Cover provides a brief summary of the regular covered bond research notes produced by Deutsche Bank, Société Générale CIB, LBBW, Barclays Capital and DZ Bank. With the covered bond to senior unsecured spread having widened considerably in the recent past, one of the key focuses is on relative value, and in some cases senior is preferred over covered. A couple of houses also look at the Scandinavian region with one highlighting the risk of house price declines on high LTV pools in Denmark and Sweden. Finally, one house looks at rising Spanish NPLs and finds that this should not be a problem – provided there’s a €75bn recapitalisation.

Covered bond traders and syndicates warned against premature optimism during the relative calm at the start of this week, and it turns out those warnings were apt. But syndicate officials have not given up hope of issuance in the next few weeks even though the possible candidates to reopen the market are down to a select few from Germany, the Nordics and the Netherlands — and those with credit lines to US investors are now even better placed.

After a week of severe fluctuations in all market segments, traders said Monday morning was the quietest day in weeks. Market participants are hoping for a modicum of stability to improve the chances of primary supply at the end of the month and several issuers from core jurisdictions are finalising roadshows in order to come to market, syndicate bankers said. But if new issue premiums are at the top end of expectations, they added, it will reshape the secondary curve — and this may deter some names from returning.

French covered bonds have widened in the secondary market following concern that the sovereign could lose its triple-A rating. Meanwhile traders reported buying in Spanish and Italian covered bonds as investors move out of government paper.

Moody’s took negative rating action on covered bonds issued by two Danish banks on Thursday, and withdrew the ratings on one. Nykredit Realkredit’s Capital Centre D was downgraded and three of BRFkredit’s programmes were placed on review for downgrade. The rating agency withdrew its rating on Realkredit Danmark’s covered bonds. An S&P report released on Thursday suggests the agency is increasingly bearish about the state of the Danish banking sector.

The fight for the Danish mortgage system will continue, as CRD IV proposals released on Wednesday left undefined which assets would qualify as Level 1 or Level 2 as part of Basel III’s Liquidity Coverage Ratio (LCR).

Moody's today announced senior unsecured bond downgrades for three Danish banks. As a result the over-collateralisation levels of the covered bonds issued by these banks needs to be raised to maintain current ratings. Whether or not local banks choose to keep Moody’s and post significantly more collateral is, as yet, undecided, but after Realkredit Danmark’s decision to drop the agency, it’s possible that others will follow its lead.

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.

Following Amagerbanken's collapse, Denmark’s Fjordbank Mors has become the latest bank casualty after it failed to meet the local regulator’s solvency requirements. The bank’s failure comes amidst growing concern over the country’s high household indebtedness and increased rating agency scrutiny of local covered bond programmes. Realkredit Danmark and Nykredit have both restructured their covered bond pools, isolating adjustable rate mortgages. Other issuers are expected to follow. And, in response to Moody’s increasingly draconian approach, Realkredit has dropped the agency.

Two Danish issuers completed auctions of mortgage backed covered bonds to refinance adjustable rate mortgage (ARM) loans this week. Nordea Kredit Realkreditaktieselskab sold DKK11bn on Wednesday, and Realkredit Danmark on Thursday auctioned Eu680m of one year bonds.